A late rally in resources companies and metal producers helped the benchmark gauge erase earlier losses and close at a seven-month high for second time this week.
Coal India, the world’s biggest producer of the fuel, and Tata Steel were the biggest gainers on the S&P BSE Sensex. Axis Bank rose to its highest price since October, while Hindustan Unilever gained for a second day. Drugmakers Sun Pharmaceutical Industries, Lupin and Dr Reddy’s Laboratories were among the worst performers on the gauge.
The Sensex gained 0.5% at the close in Mumbai, as some investors bought into the intraday loss of 0.3%. A faster-than-anticipated economic expansion, a recovery in company profitability and forecast for above-average rainfall after back-to-back droughts has bolstered confidence in $1.4tn stock market. The index jumped 4.1% last month, the most among Asian indexes.
“There may be small corrections in the markets, but the larger story remains intact as earnings are showing a smart turnaround and the monsoon outlook is positive,” Deven Choksey, managing director of KR Choksey Shares & Securities, said in an interview to Bloomberg TV India in Mumbai. “Every dip is a buying opportunity.” Sixty six per cent of the companies in the NSE Nifty 50 index posted earnings in the March quarter that exceeded or matched estimates. This compares with 52% in the three months ended December, data compiled by Bloomberg show. Sales for Sensex companies rose 7% year-on-year after five straight quarters of declines, the data show.
Official data this week showed the nation’s world-beating economic growth accelerated a faster-than-estimated 7.9% in the March quarter. The figures cemented the nation’s position as a bright spot among emerging markets as China slows while Russia and Brazil see contractions. Growth prospects will depend on how the monsoon pans out. The country is relying on a return to normal rainfall after two back-to-back droughts to increase crop output, help keep food prices in check and ease a drinking- water shortage.
Central bank governor Raghuram Rajan said last month that expectations a good monsoon will boost food output may help temper inflation after a jump in April. Higher farm output may also be a political boon for Prime Minister Narendra Modi, who has sought to counter rising discontent in villages before key state elections with a pledge to double farmer incomes by 2022.
“The narrative on the Modi government will change over the next few months for one because the earnings cycle is turning,” Ridham Desai, head of India research at Morgan Stanley, said in an interview with Bloomberg Quint in Mumbai. “People were looking at the earnings cycle and thinking the government hasn’t done enough work. Consumption in India is about to turn up sharply in the next 12 to 18 months.” Desai said he’s bullish on consumer-discretionary companies.
Coal India rallied to its highest level since March 11. The shares were raised to neutral from underweight at JPMorgan Chase & Co.
The gains helped a gauge of state-run companies climb to its highest level since April 27. Engineers India was the best performer on the gauge with a 6.8% surge. NHPC, a generator of hydro-power, rose for a third day.
Tata Steel advanced 2.6%, taking this year’s gains to 31%. Axis Bank gained 2.4%. Hindustan Unilever added 1.5%.
The Sensex has climbed 2.8% so far this year and is valued at 16.6 times 12-month projected earnings, compared with a multiple of 11.9 for an index of emerging markets.  
Meanwhile, the rupee made a smart recovery against dollar yesterday after a three-day straight fall and ended higher by 16 paise at 67.29 on fresh bout of dollar selling by banks and exporters.